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Sinclair/Tribune Merger Report of Investigation

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Sinclair/Tribune Merger Report of Investigation UNITED STATES GOVERNMENT FEDERAL COMMUNICATION S COMMISSION OFFICE OF INSPECTOR GENERAL MEMORANDUM DATE: August 24, 2018 TO: David L. Hunt. Inspector General FROM: (b) (7)(C) THROUGH: ector General for Investigations: (b) (7)(C) SUBJECT: Allegations of improprieties related to the Commission's review of the merger between Sinclair Broadcast Group, Inc. and Tribune Media Company 'jew In response to requests from ( oI1gress made on November 13 and November 15. 20! 7. the Federal Communications Commission (FCC or Commission) Oflice of Inspector General (OlG) conducted an investigation into whether FCC Chairman Ajit Pai Chairman Pai ) "has taken actions to improperly benefit Sinclair Broadcast Group (Sinclair):' and "is executing his leadership of the FCC free from influences that compromise his objectivity and impartiality," especially with regard to the proposed merger of Sinclair and Tribune Media.' Our investigation revealed no evidence of impropriety, unscrupulous behavior, favoritism towards Sinclair, or lack On July 19. 2018. the FCC designated the applications seeking to transfer control of Tribune subsidiaries to Sinclair for hearing (HDO). On August 9. 2018, Tribune terminated its merger agreement with Sinclair. Case Number: Case Title: Sinclair Broadcast Group OFFICiAL USE ONLY LAW ENFORCEMENT SENSITIVE INFORMATION FCC Office of' Inspector General Page 1 of 8 REPORT OF INVESTIGATION (continuation sheet) of impartiality related to the proposed Sinclair-Tribune Merger. Background The FCC is an independent federal agency created by Congress to regulate interstate and international communications by radio, television, wire, satellite, and cable in all 50 states, the District of Columbia and U.S. territories.2 The agency is governed by five presidentially appointed Commissioners subject to confirmation by the Senate.3 The FCC Commissioners are from both political parties, however only three commissioners may be members of the same political party.4 This bipartisan structure is intended to ensure that the agency remains free of partisan political pressure, and independent of the policy aims of the Executive Branch. Because the FCC is an independent regulatory agency, it is to remain free from undue influence. The Commission must, from the very nature of its duties, act with entire impartiality. It is charged with the enforcement of no policy except the policy of the law. Its duties are neither political nor executive, but predominantly quasi-judicial and quasi-legislative.5 On May 8, 2017, Sinclair issued a press release announcing that it entered into a definitive agreement under which Sinclair will acquire 100% of the issued and outstanding shares of Tribune for an aggregate purchase price of approximately $3.9 billion plus the assumption of approximately $2.7 billion in net debt. On June 26, 2017, the FCC accepted for filing applications seeking consent to the transfer of control of subsidiaries of Tribune holding the licenses of full-power broadcast television stations (and related broadcast auxiliary facilities), low-power television stations, and TV translator stations to Sinclair. On July 6, 2017, the Commission released a public notice (DA 17-647) announcing that the Commission’s Media Bureau was establishing a pleading cycle for applications to transfer control of Tribune to Sinclair (MB Docket No. 17-179). The public notice indicated that interested parties must file petitions to deny no later than August 7, 2017, that oppositions to petitions to deny must be filed no later than August 22, 2017, and that replies must be filed no later than August 29, 2017. 2 47 USC § 151. 3 47 CFR § 0.1; 47 USC § 154. 4 47 USC § 154(b)(5). 5 See Humphrey’s Executor v. United States, 295 U.S. 602 (1935). Case Number: Case Title: OIG-I-18-0006 Sinclair Broadcast Group OFFICIAL USE ONLY LAW ENFORCEMENT SENSITIVE INFORMATION FCC Office of Inspector General Page 2 of 8 REPORT OF INVESTIGATION (continuation sheet) On August 14, 2017, FCC Chairman Pai received a letter from United States Representatives Frank Pallone, Jr., Diana DeGette, and Mike Doyle (Pallone-DeGette-Doyle letter), requesting information about: (1) meetings between Chairman Pai and members of his office and Sinclair representatives, including lobbyists and lawyers representing Sinclair; (2) meetings between Chairman Pai and President Trump or President-elect Trump; (3) the FCC proceeding to allow TV broadcasters to use Next Gen TV; (4) the Sinclair-Tribune proposed merger; (5) the processing guidance on license transfer applications; and (6) other FCC proceedings that may have a bearing on the Sinclair-Tribune proposed merger. A copy of this letter is included as Attachment 1. On September 15, 2017, Chairman Pai responded to the Pallone-DeGette-Doyle letter. The response includes separate sections addressing Meetings/Correspondence, Next Gen TV, Sinclair-Tribune Proposed Merger, Processing Guidance on License Transfer Applications, and Other Potential Proceedings. A copy of the response is included as Attachment 2. On September 29, 2017, Chairman Pai received a second letter from United States Representatives Frank Pallone, Jr., Diana DeGette, and Mike Doyle indicating that the Chairman’s September 15, 2017, response to the Pallone-DeGette-Doyle letter “failed to respond to several of our specific questions and raised additional question” and requesting additional information. A copy of this letter is included as Attachment 3. On November 13, 2017, FCC Inspector General David Hunt (Hunt) received a letter from United States Representatives Pallone and Elijah Cummings requesting assistance in “investigating whether … Chairman Ajit Pai has taken actions to improperly benefit Sinclair Broadcast Group (Sinclair)” and stating that Chairman Pai has “repeatedly refused to adequately respond to Congressional inquiries on this subject.” As a result of this request, FCC OIG opened a full investigation into this matter. A copy of this letter is included as Attachment 4. On November 15, 2017, Inspector General Hunt received a letter from United States Senators Cantwell, Blumenthal, Markey, Warren, Wyden, Duckworth, Masto, Udall, Murray, Franken, Durbin, Sanders, Merkley, Booker, and Leahy requesting that Hunt “commence an investigation into whether the chairman … is executing his leadership of the FCC free from influences that compromise his objectivity and impartiality.” The letter goes on to state that “we have strong concerns that the FCC’s ongoing review of the proposed merger of Sinclair Broadcast group (Sinclair) and Tribune Media (Tribune) may be tainted by a series of actions and events that raise questions about the independence and impartiality of the FCC.” A copy of this letter is included as Attachment 5. Case Number: Case Title: OIG-I-18-0006 Sinclair Broadcast Group OFFICIAL USE ONLY LAW ENFORCEMENT SENSITIVE INFORMATION FCC Office of Inspector General Page 3 of 8 REPORT OF INVESTIGATION (continuation sheet) On December 21, 2017, Chairman Pai responded to the second Pallone-DeGette-Doyle letter. The response includes separate sections addressing Correspondence, Sinclair-Tribune Proposed Merger, Processing Guidance on License Transfer Applications, and Other Potential Proceedings. A copy of the response is included as Attachment 6. On December 21, 2017, the FCC issued a Notice of Apparent Liability (NAL) proposing to fine Sinclair in excess of $13.3 million for alleged sponsorship ID violations. In the Matter of Sinclair Broadcast Group, Inc., Notice of Apparent Liability, FCC 17-171, 2017 WL 6554328 (released Dec. 21, 2017). On July 19, 2018, the FCC designated the applications seeking to transfer control of Tribune subsidiaries to Sinclair for hearing (HDO).6 On August 9, 2018, Tribune terminated its merger agreement with Sinclair. Investigation To conduct the investigation, FCC OIG investigators: 1. Obtained and reviewed email correspondence from and to FCC Chairman Pai; Matthew Berry, Chief of Staff in the Office of the Chairman; Nicholas Degani, Senior Counsel in the Office of the Chairman; and Commissioner Brendan Carr7, for the period from November 1, 2016 through January 3, 2018. A copy of the Investigative Activity Report (IAR) for obtaining digital evidence (without attachments) is included as Attachment 7. A copy of the IAR for reviewing digital evidence (without attachments) is included as Attachment 8. 2. Obtained and reviewed network shares (private network storage) from FCC Chairman Ajit Pai; Matthew Berry, Chief of Staff in the Office of the Chairman; Nicholas Degani, Senior Counsel in the Office of the Chairman; and Commissioner Carr for period from November 1, 6 Specifically, the HDO stated that “substantial and material questions of fact exist regarding whether: (1) Sinclair was the real party in interest to the sale of WGN-TV, KDAF (a Dallas station), and KIAH (a Houston station); (2) if so, whether Sinclair engaged in misrepresentation and/or lack of candor in its applications with the Commission; and (3) whether consummation of the overall transaction would be in the public interest, including whether it would comply with Section 73.3555 of the Commission’s rules, the broadcast ownership rules. Accordingly, in this Hearing Designation Order, we commence a hearing before the Administrative Law Judge to determine whether the above-captioned applications should be granted or denied.” See In the Matter of Applications of Tribune Media Company and Sinclair Broadcast Group, Hearing Designation Order, MB Docket 17-179, FCC 18-100 (released July
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